Chancellor pledges skills and productivity boost in Autumn Statement

Chancellor George Osborne today promised to continue the process of “lower inflation, lower unemployment and higher growth” with the government’s long-term economic plan. Using the latest forecast figures from the Office of Budget Responsibility (OBR), Osborne’s Autumn Statement looked to capitalise on the economic gains seen in the last year.

A few of the highlights:

“We must increase our productivity”

The chancellor quoted the latest stats from the Global Innovation Index, which places the UK in second place in the rankings, up from 14th in 2010. But he pledged to make Britain “the best” with added investment in research and development across the UK including £235 million on a new science research centre in Manchester and £20 million towards a research centre on ageing, in Newcastle.

“To improve the productivity of our economy, we back business and we build infrastructure and we will support growth across the whole UK,” he said.

From April 2015, the Small Business Rate Relief will be doubled and the ‘high street discount’ – introduced as part of the government’s High Street Innovation Fund earlier this year – will be increased to £1,500 from April 2015. But the CIPD’s chief economist, Mark Beatson, said productivity in the UK was still “by far the greatest challenge facing our economy.”

“Despite the fact that the economy has grown faster than expected and employment growth is expected to be the highest we’ve seen since 1988, company profitability and productivity levels are, generally, still well below pre-recession levels and look set to stay there for some time,” he said.

“There is no silver bullet for the productivity puzzle the UK is currently facing, but one area where there is a blind spot in current policy thinking is the role that improvements in workplace practices can play in enhancing productivity. We need a fundamental review of UK skills policy to capitalise on current investment in skills, to better understand how to help boost demand among employers for greater investment in skills and to improve how skills are used in the workplace,” he added.

“Our goal is to abolish youth unemployment altogether”

From April 2016 employers will not have to pay National Insurance contributions (NICs) for all but the highest earning apprentices aged under 25; an extension to last year’s announcement to remove employer NICs for under-21s from 2015. Government-backed student loans of up to £10,000 will “revolutionise the support for our post-graduate students too,” the Chancellor said.

“We welcome the measures in the statement encouraging businesses to invest in apprenticeships. However, equally important as making any changes to National Insurance contributions is the need to incentivise schools to promote apprenticeships more strongly as a pathway into work, and more generally, to improve links between business and schools and colleges to help prepare young people for work,” said Katerina Rudiger, head of skills and policy campaigns for CIPD.

“We support people who want to work hard and get on”

By freezing working age benefits for two years, and ending unemployment benefits for migrants with no prospect of work, Osborne hopes to incentivise people to find and stay in employment. According to OBR figures, 500,000 more jobs were created in the last year, 85 per cent of which were full-time roles and the chancellor said that UK unemployment is expected to fall to 5.4 per cent in 2015.

From next year, the tax-free Personal Allowance will increase to £10,600, “a total wage boost for working people of £825 a year,” Osborne said. But the CIPD’s Beatson said it would be a little while yet before employers increased their wage bills.

“The [OBR] forecast underestimates the amount of spare capacity there is in the labour market among those out of work and looking, such as benefit claimants, the over 50s and migrants. In addition, there are ‘underemployed’ people who are looking for a job with more pay,” he said.

“Due to this strong supply of labour at current salary levels, we think it will take longer than the OBR expects before enough employers feel compelled to pay more, and certainly before it begins to show up in higher average earnings growth.

"If average earnings grow faster than inflation at all in 2015, it will be because inflation is below target, not because of higher pay growth,” he added.